October 8, 2008

BIRMINGHAM, Ala. - Republican Presidential Candidate Sen. John McCain in Tuesday night's presidential debate renewed calls for a federal government program to buy up the country's failing mortgages and refinance them into affordable payments for owners.  The plan has been championed in recent weeks by economists and politicians on both sides of the aisle.  UAB assistant professor of Finance Stephanie Rauterkus said Wednesday that the idea is a good one, but such a plan could prove difficult to implement.

"This is an option to be considered, because what people want is something with a more immediate impact that directly affects them and their financial struggles," Rauterkus said.

The mortgage payer bailout, as presented by Sen. McCain and others, would refinance homes to current market prices, creating more affordable payments for owners that are facing foreclosure as a result of excessive monthly mortgage rates.  Rauterkus said any kind of proposal to bailout struggling homeowners could also benefit the banks that have funded the faltering mortgages.

"Banks want to get paid back, but in the current economic climate there is no sure thing for the banks," Rauterkus said.  "So the lenders would rather renegotiate to a lower loan rate and receive a lower monthly payment rather than getting nothing at all."

Rauterkus said the challenge of a mortgage payer bailout is the industry practice of concentrating troubled mortgages into securities that are sold by the original mortgage lenders to other companies.  Finding out just who owns some of the country's bad mortgages so that terms can be renegotiated, Rauterkus said, could prove challenging and be a roadblock to any bailout plan.  She also said the prices at which the government buys the bad mortgages would also weigh on the effectiveness of any plan.